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Employment Effects of Financial Constraints during the Great Recession

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  • Michael Siemer

    (Federal Reserve System)

Abstract

Employment declined substantially during the 2007–2009 recession, especially in small and young firms. Using confidential firm-level data of the universe of firms and a difference-in-differences methodology, this paper estimates that financial constraints reduced employment growth by 4 to 8 percentage points in small firms relative to large firms and by 7 to 9 percentage points in young relative to old firms. I find that the effect of financial constraints on small firms is driven to a large extent by young firms. I then document that financial constraints affected employment growth in small and young firms strongly through the entry and exit of firms.

Suggested Citation

  • Michael Siemer, 2019. "Employment Effects of Financial Constraints during the Great Recession," The Review of Economics and Statistics, MIT Press, vol. 101(1), pages 16-29, March.
    • Handle: RePEc:tpr:restat:v:101:y:2019:i:1:p:16-29
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    File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/rest_a_00733
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